Cargill reaps bumper harvest from grain price

by Gregory Meyer - 13/10/2010

"Big spikes in grain prices have led to soaring profits at Cargill, the world’s largest agricultural commodities trader. "

The Minnesota-based company’s net profit rose 68 per cent to $883m in the first quarter ended August 31, from $525m a year earlier. Cargill’s trading and processing segment, the historic heart of the 145-year-old company, was the fastest-growing contributor to earnings.

The gains came as food demand rebounded after the global financial slowdown and fears of a shortfall sent grain prices toward the highest levels since the world food crisis of 2007-2008. During the quarter, wheat jumped 43 per cent, sugar rose 39 per cent, corn moved up 20 per cent and cotton gained 11 per cent.

“Our results were led by the food ingredients and the commodity trading and processing segments, both of which experienced resurgence in volatility across agricultural commodity markets,” Greg Page, chief executive, said in a statement.

Privately-held Cargill and its main competitors, including Illinois-based Archer Daniels Midland, New York-based Bunge and France’s Louis Dreyfus, dominate global trading of agricultural commodities. The four trading houses, known because of their initials as the industry’s “ABCD”, are set to profit from crop shortages, executives say.

Fertiliser and seed companies, including DuPont and Monsanto, and manufacturers of farm equipment, such as Deere, would also profit. Cargill also owns a 64 per cent stake in Mosaic, the fertiliser company whose earnings in the same quarter nearly tripled from a year ago to $297.7m.

Cargill said changes in trade flows created opportunities for the group that sources and trades grains, oilseeds and other commodities between continents, without specifying which flows changed. In the reporting quarter, the worst heatwave and drought in more than a century devastated grain crops in Russia, leading to export restrictions on grains. India extended a ban on cotton exports, temporarily locking up Cargill’s inventories there, but generating demand for US cotton.

The heightened volatility “put Cargill’s global breadth, trading and risk management skills more acutely into play as we worked with customers to help them manage their price risk and raw material needs”, said Mr Page.

Choppy energy markets cut earnings in the company’s risk management and financial segment.

Excluding its Mosaic stake, Cargill earned $693m in the quarter, 51 per cent up on a year ago. Revenue rose 6 per cent to $27.8bn.

More Details: http://www.ft.com/cms/s/0/04629b26-d62a-11df-81f0-00144feabdc0.html